"First Circuit Holds That a Private Equity Fund May be Liable for Portfolio Company Pension Obligations"

July 29, 2013 | Skadden, Arps, Slate, Meagher & Flom LLP | Pamela Lawrence Endreny,Neil M. Leff, Regina Olshan, W. Kirk Wallace, Trevor R. Allen

On July 24, 2013, the U.S. Court of Appeals for the First Circuit held that a private equity fund sponsored by Sun Capital Advisors constituted a “trade or business” for purposes of ERISA multiemployer pension withdrawal liability.¹ The decision may have a significant impact on the private equity sector.

Although there has long been uncertainty regarding whether a private equity fund or its other portfolio companies may be liable for the unfunded pension obligations of one of the PE fund’s portfolio companies, this is the first appellate court decision to address the issue of whether a PE fund constitutes a trade or business for purposes of ERISA’s withdrawal liability provisions. While the decision is not binding on courts in other circuits, it underscores the risk of controlled group liability that PE funds face. Accordingly, to minimize exposure to unfunded pension liabilities, PE funds should consult counsel when considering an investment in a portfolio company that maintains or contributes to a multiemployer plan or other defined benefit pension plan.

Controlled Group Liability Under ERISA

Under ERISA, a contributing employer that withdraws from a multiemployer plan is liable for its allocable share of the plan’s unfunded pension liabilities at the time of withdrawal. Similarly, an employer that is a contributing sponsor with respect to a single employer defined benefit plan is liable for any unfunded pension liabilities that exist at the time the plan is terminated.

In addition, each member of the “controlled group” consisting of the employer and each trade or business under common control with the employer is jointly and severally liable for the employer’s share of the plan’s unfunded pension liabilities. For these purposes, a trade or business is generally considered to be under “common control” with a contributing employer if:

the trade or business owns, directly or indirectly, a controlling interest (generally, an 80 percent or greater interest) in the contributing employer;
the contributing employer owns, directly or indirectly, a controlling interest in the trade or business, or
a parent organization which is, itself, a trade or business (or, in certain cases, an investor group consisting of five or fewer individuals, trusts or estates) owns, directly or indirectly, a controlling interest in the contributing employer and the trade or business.

If a PE fund is considered to be a trade or business for purposes of these ERISA rules, the PE fund’s ownership of a controlling interest in a portfolio company would cause the PE fund and the portfolio company (as well as other portfolio companies controlled by the fund) to be treated as being a controlled group. Membership in the controlled group would expand each time the PE fund acquired a controlling interest in another portfolio company, and both the PE fund and the other portfolio companies would be exposed to the pension plan liabilities of each portfolio company.

History of Sun Capital Case

The parties in the Sun Capital case consisted of three PE funds sponsored by Sun Capital Advisors — Sun Capital Partners III, LP, and Sun Capital Partners III QP, LP (collectively, Sun Capital Fund III), and Sun Capital Partners IV, LP (Sun Capital Fund IV) — and the New England Teamsters and Trucking Industry Pension Fund (the Pension Fund), a multiemployer plan with respect to which Scott Brass, Inc. (SBI), was a contributing employer.

In early 2007, the Sun Capital funds acquired 100 percent of SBI, with 70 percent of the ownership interests allocated to Sun Capital Fund IV, and 30 percent allocated to Sun Capital Fund III. In late 2008, SBI withdrew from the Pension Fund and shortly thereafter filed for bankruptcy. The Pension Fund demanded payment by SBI of withdrawal liability in the amount of $4.5 million and by the Sun Capital funds, claiming that the funds had entered into a joint venture or partnership that was under common control with SBI.

In a subsequent civil action, the U.S. District Court for the District of Massachusetts ruled in favor of the Sun Capital funds, holding that the Sun Capital funds were not trades or businesses under ERISA and therefore were not liable for SBI’s withdrawal liability. The court cited what it characterized as well-settled case law in the federal income tax context that the mere holding of a passive investment was not sufficient to constitute a trade or business, and determined that, notwithstanding the active participation by the Sun Capital funds’ general partners (and other related parties) in the management of SBI, the funds themselves remained passive investors.

The First Circuit Decision

The First Circuit reversed, holding that a PE fund could, under certain circumstances, be considered a trade or business for purposes of ERISA’s withdrawal liability provisions. The court further determined that Sun Capital Fund IV constituted a trade or business.

The First Circuit adopted what it described as an “investment plus” test for determining whether a PE fund constitutes a trade or business. Under this test, merely making investments in portfolio companies for the principal purpose of making a profit would not be sufficient to cause a PE fund to be treated as a trade or business. Rather, additional factors would have to be present that would distinguish the PE fund from a mere passive investor.

Although the court declined to provide general guidelines for identifying these additional factors, the following factors, taken together, were sufficient to establish that Sun Capital Fund IV was a trade or business:

the Sun Capital funds’ partnership agreements and private placement memoranda contained statements to the effect that the funds would be actively involved in the management and operation of the portfolio companies in which they invested;
the Sun Capital funds’ general partners were granted broad authority under the partnership agreements to participate in the management of the portfolio companies, including the authority to make decisions about hiring, terminating and compensating agents and employees of the portfolio companies;
the Sun Capital funds’ controlling stake in SBI placed them and their affiliated entities in a position where they were able to participate in the management and operation of the company to a degree well beyond that of a passive investor; and
Sun Capital Fund IV received a direct economic benefit from its involvement in the management of SBI that a passive investor would not receive because payments SBI made to the fund’s general partner (and a subsidiary thereof) for management services were offset against the management fees the fund was required to pay to the general partner.

The First Circuit made no determination as to whether Sun Capital Fund III constituted a trade or business, noting that it was unable to tell from the record whether Sun Capital Fund III also benefited from a management fee offset. Although the court left this issue to be resolved by the district court on remand, its ruling suggests that the other factors cited might not, in the absence of a management fee offset arrangement, be sufficient to satisfy the “investment plus” test.

The First Circuit also instructed the district court to determine on remand whether the Sun Capital funds were under common control with SBI. The resolution of this issue also will have a significant impact on how PE funds structure their investments. Although none of the Sun Capital funds individually held an 80 percent or greater interest in SBI, the Pension Fund characterized the investment arrangement between the Sun Capital funds as a partnership or joint venture (for which each of the funds would presumably have unlimited liability), and if the combined holdings of the funds were attributed to a single partnership or joint venture, the resulting ownership interest (i.e., 100 percent of SBI) would constitute a controlling interest.

Impact on PE Funds

Under the Sun Capital decision, any PE fund that owns an 80 percent or greater interest in a portfolio company and actively participates, either directly or through its general partner (or other affiliated entities), in the management of the portfolio company or receives any economic benefit directly attributable to such management activity, is at risk of being viewed as part of a controlled group with that company. In addition, although not directly addressed in the decision, it logically follows that once a PE fund is determined to be a member of a portfolio company’s controlled group, any other portfolio company in which the PE fund owns an 80 percent or greater interest could also be considered a member of that controlled group. Accordingly, advisors to PE funds will need to consider carefully the potential financial impact, both on the PE fund and its other portfolio company investments, of any investment in a portfolio company that maintains or contributes to a multiemployer plan or single employer pension plan.

Many PE fund sponsors seek to minimize exposure to pension liabilities by strategically apportioning ownership of a portfolio company among two or more PE funds, such that no single fund owns a controlling interest. It appears this strategy could ultimately prove ineffective if PE funds holding a combined 80 percent or greater interest were determined to be acting as a joint venture or partnership in connection with their investment. This is the argument the Pension Fund made in asserting that the Sun Capital funds were under common control with the SBI, and the district court likely will consider this issue on remand.²

Although the First Circuit emphasized that it was construing the term trade or business solely for purposes of ERISA’s multiemployer plan withdrawal liability rules, the impact of the decision could potentially extend to other types of pension plans maintained by portfolio companies. We believe the First Circuit would employ the same “investment plus” test to determine whether a PE fund is a trade or business for purposes of ERISA’s single employer plan termination liability rules (although courts in other circuits may yet conclude that a PE fund is not a trade or business for purposes of ERISA’s withdrawal liability and termination liability rules). In addition, a plan sponsor and each trade or business under common control with the plan sponsor are generally treated as a single employer for purposes of applying the nondiscrimination rules applicable to tax-qualified retirement plans (which include both defined benefit and defined contribution pension plans). If a PE fund were treated as a trade or business for these purposes, this could affect the nondiscrimination testing of plans maintained by portfolio companies in which the PE fund owns a controlling interest, making it difficult for the portfolio companies to maintain separate plans providing different levels of benefits.

Potential Income Tax Implications?

From a federal income tax perspective, the impact, if any, of the First Circuit’s opinion is uncertain. The court expressly cautions against extending its analyses and conclusions beyond the scope of ERISA’s withdrawal liability provisions. However, even if it were so extended, it has been long understood that acts of the investment manager undertaken on behalf of a PE fund can be attributed to the fund for various purposes of the Internal Revenue Code. Furthermore, many have long believed that the law distinguishes between acts that would be expected of a mere shareholder (i.e., acts that are consistent with investing rather than engaging in a trade or business for purposes of, for example, one or more of Sections 162, 166 or 864 of the Internal Revenue Code) and those that constitute day-to-day managing of a corporation’s business. If future decisions, however, were to interpret the First Circuit’s opinion to apply for purposes of federal income tax law and to treat activities that historically have been viewed as those of an “investor” as constituting trade or business activities for such purposes, then the case may represent a significant new development in this area.

Potential ramifications could include:

subjecting non-U.S. investors in a PE fund to federal income tax — and potentially state and local tax — on income and gain derived from the fund;
creating “unrelated business taxable income” for the PE fund’s tax-exempt investors; and
permitting the PE fund to fully deduct management fees under Section 162 of the Internal Revenue Code, which would create an “above the line” deduction for investors.

* * * *

As full impact of this troubling decision evolves, we will continue to monitor any subsequent developments in case law and in PE fund practice in this area.

__________________________________

1 Sun Capital Partners III v. New England Teamsters & Trucking Indus. Pension Fund, 2013 WL 3814984 (1st Cir. July 24, 2013).

2 The same argument was made in a 2010 case brought by multiemployer plans seeking to collect withdrawal liability from a group of related PE funds sponsored by Palladium Equity Partners. See Board of Trs., Sheet Metal Workers’ Local No. 292 Pension Fund v. Palladium Equity Partners, 722 F. Supp. 2d 854 (E.D. Mich. 2010). In declining to grant the PE funds’ motion for summary judgment, the court found that there was a genuine issue of material fact as to whether the PE funds constituted a partnership or joint venture, noting that while there was no direct evidence that the PE funds intended to establish a joint relationship, the funds shared a single general partner and had made investments together on a parallel basis. The case was ultimately settled.

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Stephen A. Schwarzman, a co-founder of Blackstone, took home the largest haul last year: nearly $800 million. He and other private equity executives receive more annually than the leaders of Facebook and Apple, companies that revolutionized the way society communicates.

The top executives at those six publicly traded private equity firms earned, on average, $211 million last year — which is about what Leon Black, a founder of Apollo, received. That amount was nearly 10 times what the average bank chief executive earned, though firms like Apollo face less public scrutiny on pay than banks do.

Private equity firms note that much of their top executives’ wealth stems from owning their own stock and that they have earned their fortunes bringing companies back to life by applying their operational and financial expertise. Hostess, a defunct snack brand that was quickly returned to profitability, is a textbook example of the success of this approach.

Yet even as private equity’s ability to generate huge profits is indisputable, the industry’s value to the work force and the broader economy is still a matter of debate. Hostess, which has bounced between multiple private equity owners over the last decade, shows how murky the jobs issue can be.

In 2012, the company filed for bankruptcy under the private equity firm Ripplewood Holdings. Months later, with Ripplewood having lost control and the company’s creditors in charge, Hostess was shut down and its workers sent home for good.

Without investment from Apollo and Metropoulos, Hostess brands and all those jobs might have vanished forever after the bankruptcy. The way these firms see it, they created a new company and new jobs with higher pay and generous bonuses.

But the new Hostess employs only 1,200 people, a fraction of the roughly 8,000 workers who lost their jobs at Hostess’s snack cake business during the 2012 bankruptcy.

And some Hostess employees who got their jobs back lost them again. Under Apollo and Metropoulos, Hostess shut down one of the plants they reopened in Illinois, costing 415 jobs.

The collapse and revival of Hostess illustrates how even in a business success, many workers don’t share in the gains. The episode also provides a snapshot of the economic forces that helped propel Donald J. Trump to the White House.

Since losing his job at Hostess in 2012, Mark Popovich has had three jobs, including one that paid about $10 an hour, half what he made at the Twinkie-maker. A lifelong Democrat and devoted “union man,” Mr. Popovich said he supported Mr. Trump, the first time he ever voted Republican.

“It’s getting old, getting bounced around all the time,” said Mr. Popovich, a 58-year-old Ohio resident.

Mark Popovich, 58, in front of the former Hostess Brands bakery in Northwood, Ohio. Mr. Popovich lost his job when Hostess closed the plant in 2012 and has had three jobs since. He was laid off again just before Thanksgiving. CreditLaura McDermott for The New York Times

Such frustrations stem from broader shifts in the economy, as all types of companies turn to automation to cut costs and labor unions lose their influence. While these changes have helped keep companies profitable, private equity has used these shifts in the workplace to supercharge wealth far beyond that of the typical chief executive.

And yet, Mr. Trump did not focus on private equity on the campaign trail, instead blaming the plight of the American working class on a shadowy cabal of elitist Democrats and Wall Street bankers who support trade deals that ship jobs overseas.

“People understand jobs going to China,” said Michael Hillard, an economics professor at the University of Southern Maine. “But no one has ever heard of these private equity firms that come in and do all this financial engineering. It is much more complicated and less visible.”

The industry’s trade group, the American Investment Council, says it is sensitive to these issues as private equity’s role in the economy expands. The industry now controls huge swaths of the American work force: 4.4 million employees at over 7,500 companies, according to PitchBook, a private financial data platform. By some measures, Blackstone is one of the nation’s 10 largest employers and one of its biggest landlords. The firm’s co-founder, Mr. Schwarzman, is advising Mr. Trump on job creation.

“At a time when many Americans are concerned about the country’s economic viability, private equity has proven itself in communities throughout the United States as an effective solution,” said James Maloney, the American Investment Council’s spokesman. “Sustainable growth strategies, adherence to responsible investments and a long-view approach are all a part of the present-day private equity model.”

The Times investigation of the Hostess deal shows that today’s private equity also uses another set of tactics, like special dividends and tax arrangements, that maximize profits in creative, yet financially risky ways.

A year after the layoffs at the Hostess plant in Illinois, Apollo and Metropoulos arranged for the company to borrow about $1.3 billion. Apollo and Metropoulos used most of that sum to pay themselves, and their investors, an early dividend on their investment.

The firms also found a way to make money even after the company was sold. The firms, The Times investigation found, struck a deal to collect as much as $400 million over the next 15 years, based on what Hostess’s future tax savings might be.

These winnings do not come without risk to the private equity firms, which are often taking a gamble on troubled companies, and when they fail, the firms probably lose out.

And this is not a simple story of powerful investors enriching themselves while some workers struggle. Teachers and firefighters also benefit from private equity.

Pension funds that pay retirement benefits to public servants now depend on private equity to generate huge returns. Without it, taxpayers could bear more of the costs.

“Hostess’s comeback was a win-win-win-win,” an Apollo spokesman said in a statement, adding that its investment benefited workers, communities, investors and consumers. “After teaming up to take on the daunting financial and operational challenge of creating a new company around the Hostess brand, Apollo and Metropoulos & Co. completed a highly successful private equity investment.”

On a more basic level, Americans enjoy what private equity has owned: GNC vitamins, affordable jewelry at Zales, and birthday parties at Chuck E. Cheese’s.

Hostess Brands marked the resurrection of Twinkies in July 2013, handing out the snacks free from a truck in New York. CreditScott Eells/Bloomberg

Hostess’s new owners rode a wave of nostalgia for the company’s snack cakes, a euphoria that even spread to a sprawling Long Island estate. At a wedding there in 2013, packaged cupcakes were offered to guests.

It may seem an unusual choice, but this party had a special affinity for the snack cake. The bride’s father is an executive at Apollo.

The ‘Secret Sauce’

Leon Black grew up in a family that had a home in Westport, Conn., and an apartment on Park Avenue in Manhattan. He attended Dartmouth and Harvard Business School.

But when Mr. Black traveled to Lubbock, Tex., to speak to a group of retired teachers, he emphasized a humbler side of his pedigree.

“You should know,” Mr. Black said, according to a video recording of the February 2012 meeting, “my mother was a teacher, my sister was a teacher, my brother-in-law is a teacher. We have a lot of teachers in our family.”

Mr. Black had good reason to flatter the retirees: Pension funds for teachers and other public workers are some of the biggest investors in Apollo’s funds and have helped make Mr. Black a very rich man.

Mr. Black, or an affiliated limited liability company, owns homes in Beverly Hills, Miami Beach and several locations in New York, an analysis of real estate records shows. This year, he bought the $38 million house in Beverly Hills that had belonged to the actor Tom Cruise.

Private equity’s relationship with pension funds is mutually beneficial. As countless baby boomers reach retirement at a time of historically low interest rates, public pension funds need to achieve returns that match their liabilities — and private equity has delivered.

Nearly half of private equity’s invested assets now come from public and private pensions around the world. Private equity uses this pension fund money to place bets on companies like Hostess, and Texas teachers have shared in the profits from the deal.

Fran Plemmons is a former president of the retired teachers association in Texas. The state’s teacher retirement system has invested in the fund that owns Hostess Brands and done very well, a boon to retirees at a time of rock-bottom interest rates. CreditDrew Anthony Smith for The New York Times

The Teacher Retirement System of Texas has invested in the fund that bought Hostess. And that fund has reaped 27 percent net during the three years it owned Hostess, significantly more than the stock market returned in that period.

“You need to get people in whom you trust and who will keep up our fund,” said Fran Plemmons, a former president of the Texas Retired Teachers Association who was a teacher and principal for 25 years. “If they do that, you need to get out of the way.”

Ms. Plemmons said her $31,200 yearly pension allows her to live modestly but comfortably. High returns from private equity investments, she said, help keep pension payments flowing to retired school workers across Texas, which trickles down into the local economy.

For the teachers in Lubbock, Mr. Black described the “secret sauce” behind its success: buying the debt of financially troubled companies or purchasing an entire company. The investments, he said, are “value-oriented, if not contrarian.”

Hostess fit that formula.

Not only were Americans turning to healthier snacks and eating less junk food, but Hostess had its own challenges.

In 2012, the baking company had gone through a bruising bankruptcy, its second in a decade. The company laid off most of its 18,500 unionized drivers, loaders and bakers, not long after the bakers’ union voted for a companywide strike rather than accept another round of concessions.

But what was disaster for previous owners looked like treasure to Apollo and Metropoulos.

When Hostess lenders auctioned off the company in early 2013, Apollo and Metropoulos bought some of Hostess’s snack cake brands, which included Twinkies and Ding Dongs.

Snack cakes still produced some of the highest profit margins in the food industry and Hostess cakes were particularly well-known. The bankruptcy also provided Apollo and Metropoulos a clean slate, liberating them from union contracts, labor rules and debt and pension payments.

One group of workers who had no place at the new Hostess: the unionized drivers, who transported snack cakes and bread to grocery stores nationwide.

Now, Hostess would send its baked goods to warehouses, where retailers like Walmart would ship to individual stores.

Ronald Litland, 44, delivered Hostess products in Illinois for 10 years. After he was laid off in 2012, he enrolled in a for-profit college in hopes of finding a new career in information technology. When his unemployment benefits ran out, he delivered pizzas. He never finished school, but is still paying back student loans and taking care of his son.

“I have a hard time making ends meet,” said Mr. Litland, who earns about $24,000 a year.

Like the drivers, Hostess’s baking operation was also cut back. Apollo and Metropoulos chose to buy only a handful of its roughly one dozen snack cake bakeries.

Other parts of the former Hostess baking empire were scaled back as well. Food companies picked off some of Hostess’s bread brands, but reopened only a small fraction of the bakeries.

Before being laid off from Hostess, Mr. Popovich made about $20 an hour. Every year, he went on vacation in the Bahamas or St. Martin. His health insurance covered the $385,000 cost when his wife needed major surgery.

“I lived a good life,” said Mr. Popovich, whose most recent job driving a forklift at a solar panel plant paid about $16 an hour.

Mr. Popovich is also entitled to a pension, which he was promised after working more than two decades at Hostess. But he recently received a letter at his home in Toledo, Ohio, warning that the pension fund was nearly insolvent.

Apollo and Metropoulos are not obligated to contribute to the pension fund, which is managed by a labor union. Nor do they have to pay the severance that Hostess was obligated to pay Mr. Popovich when he was laid off. Those liabilities were wiped out in the bankruptcy.

New Shoes and Dashed Hopes

At a brick bakery in Schiller Park, Ill., Twinkies started rolling off the line nearly a century ago. And when Apollo and Metropoulos bought some of Hostess’s cake plants and brands out of bankruptcy in 2013, Schiller Park’s plant was one of the fortunate few to reopen.

C. Dean Metropoulos, in suit, celebrated the comeback of Twinkies with workers at the plant in Schiller Park, Ill., in July 2013. A Hostess spokeswoman said that Mr. Metropoulos oversaw the refurbishing of the plant. But it was closed the following year. CreditScott Boehm/Associated Press

“Schiller Park, We ♥ You,” read a billboard that Hostess sponsored in the town, the heart carved into the image of a half-eaten Twinkie.

The celebration was short-lived. Just over a year after the plant’s grand reopening, Hostess shut it down.

The fallout was swift. All 415 employees were fired, some for the second time in two years. Schiller Park lost one of its largest employers, creating a ripple effect through this tiny working-class suburb of Chicago. The plant itself, an institution so old that it predated nearby O’Hare International Airport, was suddenly vacant.

“We got our hopes up again,” said the town’s mayor, Barbara J. Piltaver. “And then all of a sudden, we had a big hit.”

The story behind the rise and fall — and fall again — of the Schiller Park plant encapsulates private equity’s relationship with workers and labor unions.

It’s a complicated issue. A prominent study of investmentsacross the country concluded that private equity has increased productivity while leading to a minor overall decline in jobs relative to the broader economy. Private equity’s trade group says its o wn analysis of county demographics found that private equity investment increases jobs growth in local economies, though the data was limited.

In Schiller Park, Janice Ryan worked at the Hostess plant for about 20 years before the 2012 bankruptcy. She walked to work from her nearby home. And she was relieved to return, after several months of unemployment, to be part of what many workers believed was the company’s long-term comeback.

Schiller Park was a starting point for getting Twinkies back on the shelves by summer 2013. As part of that push, many Schiller Park employees worked 12-hour shifts, six days a week, and could volunteer for a seventh day.

Mayor Barbara J. Piltaver of Schiller Park, Ill., a working-class community of 12,000. Ms. Piltaver said the town"got our hopes up again” after Apollo and Metropoulos reopened the plant. “And then all of a sudden, we had a big hit.”CreditJoshua Lott for The New York Times

“We were all proud of what we accomplished,” said Michael Spina, who worked for Hostess for many years in St. Louis and then moved to Schiller Park to help manage production when the plant reopened.

What the workers were never told, however, was that Apollo and Metropoulos had no plans to keep Schiller Park in operation over the long term.

“Schiller, in essence, was a contingency plan, opened only to ensure that initial demand could be met,” Hannah Arnold, a Hostess spokeswoman, said in a statement. She added that the setup of the bakery — its low ceilings and lack of a loading dock — was not conducive to the company’s future plans. The company says it could not tell workers of its plans because of labor rules.

The expendability of Schiller Park reflects Apollo and Metropoulos’s plans to run a more efficient operation than their predecessors did. And that model requires far fewer workers than the one that existed for decades.

In 2012, Hostess had about 8,000 employees and eight bakeries dedicated exclusively to snack cakes. Six other plants produced at least some desserts. Today, the new Hostess has only three plants and 1,200 workers.

At Schiller Park, some workers earned a dollar less per hour than what workers were paid under the previous owners. Others earned more, the company said. Still, they qualified for bonuses, owed no union dues and received health insurance and dental care. Instead of pensions, they were enrolled in 401(k) plans.

Former employees recalled grueling shifts when temperatures inside the plant neared 110 degrees. The workers were given Gatorade to rehydrate.

Shaw Nielsen

How the Twinkie Made the Superrich Even Richer

Behind the financial maneuvering at Hostess, an investigation by
The New York Times found a blueprint for how private equity executives
have amassed some of the greatest fortunes of the modern era.

By MICHAEL CORKERY and BEN PROTESSDEC. 10, 2016

As fans gathered on Rockefeller Plaza in Manhattan, Al Roker pulled up in a big red delivery truck, ready to give America what it wanted: Twinkies.

The snack cakes flew through the air into the crowd pressed against metal barriers. One man shoved cream-filled treats into his mouth. Another “Today” host tucked Twinkies into the neckline of her dress.

Across the nation in the summer of 2013, there was a feeding frenzy for Twinkies. The iconic snack cake returned to shelves just months after Hostess had shuttered its bakeries and laid off thousands of workers. The return was billed on “Today” as “the sweetest comeback in the history of ever.”

Nowhere was it sweeter, perhaps, than at the investment firms Apollo Global Management and Metropoulos & Company, which spent $186 million in cash to buy some of Hostess’s snack cake bakeries and brands in early 2013.

Less than four years later, they sold the company in a deal that valued Hostess at $2.3 billion. Apollo and Metropoulos have now reaped a return totaling 13 times their original cash investment.

Behind the financial maneuvering at Hostess, an investigation by The New York Times found a blueprint for how private equityexecutives like those at Apollo have amassed some of the greatest fortunes of the modern era.

Deals like Hostess have helped make the men running the six largest publicly traded private equity firms collectively the highest-earning executives of any major American industry, according to a joint study that The Times conducted with Equilar, a board and executive data provider. The study covered thousands of publicly traded companies; privately held corporations do not report such data.

Meet These Very High-Earning Private Equity Executives

A joint study by The New York Times and Equilar, a board and executive data provider, examined the annual take-home pay of the top-ranking executives at the six private equity firms that are publicly traded. The findings were compared with a number of other industries, including large technology firms and banks. On average, the heads of the private equity firms earned nearly 10 times as much as the heads of banks.